* Fed's Rosengren said stimulus should only be removed
* Franc falls sharply as reserve data weighs
* Euro resists more falls, helped by inflation data
* Focus on Fed minutes and Friday U.S. jobs data
By Julie Haviv
NEW YORK, Jan 7 The dollar gained against the
yen on Tuesday, buoyed by U.S. trade deficit data that could
inflate estimates for fourth-quarter growth in the world's
The U.S. trade deficit fell to its lowest level in four
years in November as exports hit a record high and weak oil
prices restrained import growth, the latest evidence of
strengthening economic fundamentals.
The measure goes into the calculation of gross domestic
product, so the decline could prompt economists to bump up
their growth estimates for last quarter.
Stronger growth could prompt the Federal Reserve to speed up
the tapering of its monthly bond purchases, but most contend
the central bank will gradually wind it down.
Indeed, Eric Rosengren, president of the Federal Reserve
Bank of Boston, one of the most dovish U.S. central bankers, on
Tuesday said the economy remains vulnerable the longer inflation
remains too low, and he again warned that policy stimulus should
be removed "only gradually."
In early New York trade, the dollar traded 0.3 percent
higher at 104.48 yen, but remained below a five-year peak
of 105.44 yen set last week. The dollar fell as low as 103.88
yen on Monday, its lowest since Dec. 23.
The dollar index, which tracks the greenback against a
basket of six major currencies, was up 0.1 percent at 80.758
The Swiss franc, meanwhile, fell to its lowest against the
euro since October, with some analysts arguing global economic
optimism had laid the ground for a retreat for the one of the
world's "safest" currencies.
Data on Tuesday also showed Swiss National Bank foreign
currency reserves fell by almost 700 million francs in December
- suggesting pressure on its cap on the franc, which previously
forced it to buy billions of euros, had eased.
"It further underscores the bank's resolve to fight Swiss
franc appreciation and could make alternative measures like
penalty rates on bank excess reserves or negative policy rates
more attractive," said Valentin Marinov, G10 strategist at
CitiFX, a division of Citigroup.
The euro rose 0.4 percent to 1.2364 francs, its
highest since October and above the 1.20 per euro cap which the
SNB has held in place for more than two years. The franc also
lost 0.3 percent to $0.9070.
"We expect more Swiss franc downside from here given that
the Swiss franc remains excessively overvalued," CitiFX's
Marinov said. "The firm prefers to express any bearish view
against the dollar rather than the euro."
UBS pointed to signs that Swiss funds and banks are
beginning to invest and loan money abroad again - something they
have not done since 2008 and one important precondition for the
franc falling back.
"People tended to play the weaker franc last year and a lot
of them got frustrated. Now there may be a new attempt," said
Beat Siegenthaler, currency strategist with UBS.
"The question has always been what would be a trigger (for a
turnaround in the franc). It could have been the easing of the
euro crisis and that didn't happen. So maybe it is the change in
the U.S., the feeling of broader optimism and change in the
dollar that may come from economic improvement there."
UBS has a near-term target of 1.25 francs to the euro,
Meanwhile, the euro was helped by a euro zone inflation
number which was not expected to be low enough to force the
European Central Bank into more action immediately to loosen
monetary policy. The ECB meets on Thursday.
German retail sales and unemployment data were better than
expected as well, while Ireland's successful bond issue offered
more optimism on the bloc's debt strugglers.
The single currency rose as high as $1.3656, but last traded
flat at $1.3630, above from Monday's one-month low of
Looking ahead, currency trading will likely be swayed by
Friday's U.S. jobs report, which may give a clue as to how
quickly the Fed will taper its bond buying. Overall the outlook
on interest rates is against the euro.
Ahead of the jobs data, market participants will focus on
minutes from the Fed's last monetary policy meeting, scheduled
for release on Wednesday.